The U.S. government has been targeting crypto entities that they claim can enable bad actors to transact outside of the financial system, crypto exchange Tornado Cash was the latest addition. The Ethereum-based protocol was included in the Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons List (SDN).

As a consequence, the two major infrastructure providers for Ethereum, Infura, and Alchemy, are blocking Remote Procedure Call (RPC) requests to Tornado Cash, as pointed out by an ETH developer. In particular, Infura connects Ethereum to MetaMask users and users from other projects.

These users need Infura’s APIs to use their wallets with a majority of applications on the Ethereum ecosystem. Thus, if a protocol, like Tornado Cash, is cut off from Infura and Alchemy, it is isolated from a big portion of ETH users. In that sense, the Ethereum developer said while sharing the image below:

Centralized RPC services are one of the cancers that undermine the core benefits of crypto. As long as they dominate the market, no protocol is truly permissionless.

Infura’s RCP blocking Tornado Cash. Source: 0xdev0 via Twitter

The Ethereum developer voiced a concern expressed by some crypto users: where does a community or project draw the line? And what are the potential implications of yesterday’s Treasury decision? He said:

This is not just about tornado. This sets a precedent of how we react when a gov tries to restrict access to a web3 protocol. What’s next? Taking down Uniswap for supporting “securities”?

As Infura and Alchemy blocked access to Tornado Cash, the team of developers behind the crypto exchange began reporting that their GitHub accounts were being suspended. Lead developer in the project Roman Semenov denounced it via his Twitter account and asked:

My @GitHub account was just suspended

Is writing an open source code illegal now?

— Roman Semenov (@semenov_roman_) August 8, 2022 

Circle CEO Addresses Tornado Cash Sanctions

In a Twitter thread, the CEO of the company behind stablecoin USDC, Circle, Jeremy Allaire confirmed that they had to “restrict the movement” of funds through the crypto exchange. Failure to comply with Treasury sanctions could lead to up to 30 years in prison, the executive said.

However, Allaire claims that the U.S. Treasury “crossed a major threshold in the history of the internet”. In order to prevent further actions to jeopardize the future of crypto and its underlying technology, Allaire proposed:

in the next days, Circle will call on crypto industry leaders, associations, and protocol developers to come together and help advance legal frameworks and policies to safeguard user privacy/security while evolving financial integrity rules to deal with open-source protocols. This is a pillar in the fight to protect DeFi and the future of public internet digital currency (…).

ETH’s price moving sideways on the 4-hour chart. Source: ETHUSDT Tradingview

Finally, Head of Policy for the Blockchain Association Jake Chervinsky agreed with Allaire’s comment. The legal expert believes that the decision to impose sanctions on Tornado Cash “crossed a line” in terms of an important distinction: bad actors and technologies. Chervinsky added:

We at the Blockchain Association fully support US Treasury ‘s mission to combat illicit activity in crypto, but we are concerned that today’s decision crosses a line that the US government has always respected & should continue to uphold as a matter of good policy.